KUALA LUMPUR: Malayan Banking Bhd (Maybank), which saw a 2.1% drop in its net profit for six months ended June 30, 2019 (1H19), foresees its net interest margin (NIM) to be flat this year with the expectation of another 25-basis point (bps) cut in Bank Negara Malaysia’s benchmark interest rate.
Maybank’s NIM compressed 9bps to 2.24% in 1H19 on lower Malaysian loan yields as a result of a cut in the central bank’s Overnight Policy Rate (OPR) in May and higher deposit costs in overseas markets. It is also the bank’s lowest NIM in five years.
Maybank group president and CEO Datuk Abdul Farid Alias said a 25bps cut in the OPR will impact its NIM by 1bps.
“With another 25bps cut expected, we expect our NIM to be the same compared with 1H19’s. We may change our funding structure and loan portfolio,” he told a press conference after announcing Maybank’s 1H19 financial results here today.
The group has lowered its headline key performance indicator for return on equity to between 10.0% and 10.5%, premised on a lower interest rate environment and slowing economic growth in key operating markets.
“Given the overall softness in the business environment, we continue to focus on income growth, better productivity, managing our asset quality, liquidity and capital position as well as driving our digitalisation agenda,” said Farid.
Maybank’s net profit for the second quarter ended June 30, 2019 fell marginally by 0.9% to RM1.94 billion from RM1.96 billion, due to lower effective tax rate in the previous corresponding period. Its revenue, however, rose 13.4% to RM13.05 billion from RM11.51 billion previously.
It declared an interim dividend of 25 sen per share amounting to RM2.81 billion, representing a payout of 74.9% of net profit for the period.
For 1H19, Maybank’s net profit fell 2.1% to RM3.75 billion from RM3.83 billion in the previous year, while revenue increased 13.1% to RM26.03 billion from RM23.02 billion.
During the period, the bank’s net operating income expanded 1% to RM11.75 billion, thanks to a 1% rise in net fund based income to RM8.47 billion on the back of a 4.6% growth in group loans. Gross loans increased 4.6%, with Indonesia, Malaysia, Singapore and other international markets rising 6.1%, 4.2%, 2.3% and 3.2%, respectively.
Farid expects its loan growth to be around the industry’s expected loan growth of 4.7% this year, adding that the bank’s risk appetite is to “grow responsibly”.
As for asset quality, Maybank’s gross impaired loans ratio improved to 2.62% from 2.64% in June 2018 while net credit charge off was better at 38 bps compared with 44 bps last year.
Its common equity tier 1 ratio was higher at 14.23% from 13.16% a year ago, while total capital ratio increased to 17.98% from 17.78% previously. The group’s liquidity coverage ratio came in at 145.4%, well above the regulatory requirement of 100%.
